ABSTRACT
The study evaluated the impact of monetary and fiscal policies on the production and trade of vegetable oil in Nigeria from 1980 – 2018. The study adopted ex-post-factor research design. Time series data that spanned for 39 years was obtained from the Central Bank of Nigeria, National Bureau of Statistics, Food and Agriculture Organisation (FAO) and Index Mundi bulletins. The data obtained were analysed with descriptive (percentage, mean, maximum, minimum, skewness, kurtosis) and inferential statistics (Autoregressive distributed lag (ARDL) analysis, correlation and quadratic trend analysis). The diagnosis, residual and the Toda-Yamamoto causality test of the model was carried out. The result showed that the statistical distribution of the variables indicated that vegetable oil production and exchange rate do not deviate from a normal distribution while the vegetable oil export and vegetable oil import deviate from a normal distribution. The result of the quadratic trend analysis showed that the vegetable oil production (9.15E-05, P-value > 0.05) and the vegetable oil export (2.94E-05, P-value > 0.05) have stagnated growth while the vegetable oil import (4.89E-03, P-value < 0.05) has accelerating growth. The result further showed that there was a significant difference between the volumes of vegetable oil production; export; import and the balance of trade within the reference period in Nigeria since the F-test value (103.3) has P-value < 0.05. The stationary test using Ng-Perron approach indicated that the series have mixed order of integration. ARDL bounds test for co integration showed that the response of vegetable oil production to monetary policy have a long-run relationship, the residual test of the model indicated that the model met the assumption of the classical linear regression model. The CUSUM test showed that the coefficients of the models are stable. For fiscal policy, the Toda-Yamamoto causality test result showed that inflation causes a significant impact on vegetable oil production. The negative balance of trade indicated that the volume of vegetable oil import was greater than the vegetable oil export, thereby leading to a trade deficit. Therefore the study strongly recommended that the monetary authorities should ease money supply through commercial loans for industries involved in production of vegetable oil at a single-digit prime lending rate in other to encourage growth and expansion in vegetable oil agribusiness. This becomes necessary as commercial loan has a positive effect on vegetable oil production. Also, the government should maintain expansionary fiscal policy through reduction in corporate income tax and increase spending in vegetable oil production and export to attain a favourable balance of trade and attain an accelerated rate of growth in vegetable oil production and export.
TABLE
OF CONTENT
Title i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table of Content vi
List of Tables xii
List of Figures xvi
List of Appendix xix
Abstract xx
CHAPTER 1:
INTRODUCTION 1
1.1 Background
of the study 1
1.2 Problem
statement 5
1.3 Research questions 8
1.4 Objectives of the study 8
1.5 Research
hypotheses 9
1.6 Justification
for the study 10
1.7 Scope
of the study 11
1.8 Challenges to the study 12
CHAPTER 2:
LITERATURE REVIEW 14
2.1 Conceptual review of related literature 14
2.1.1 Concept of monetary policy 14
2.1.1.1 Monetary policy tools in Nigeria 15
2.1.2 Concept of fiscal policy 16
2.1.2.1 Fiscal policy tools in Nigeria 17
2.1.3 Concept of vegetable oil 19
2.1.3.1 History of vegetable oil production and trade
in Nigeria. 19
2.1.3.2 History of palm oil production and trade in Nigeria 19
2.1.3.3 History of groundnut oil production and trade
in Nigeria 20
2.1.3.4 History of soybean oil production and trade in
Nigeria. 21
2.2 Vegetable oil production in Nigeria 23
2.2.1 Overview of palm oil in Nigeria 23
2.2.1.1 Techniques of palm oil production in Nigeria 23
2.2.1.2 Traditional method 24
2.2.1.3 Mechanised method 25
2.2.2 Groundnut oil production in Nigeria 26
2.2.2.1 Groundnut oil processing technique 28
2.2.3 Soybean oil production in Nigeria 29
2.3 Vegetable oil export and import 30
2.4 Review of policies that supported vegetable oil
production
and trade
in Nigeria from 1999 to 2019 31
2.4.1 Presidential initiative on agriculture (1999 –
2007) 31
2.4.1.1 Presidential initiative on vegetable oil
development programme objectives 32
2.4.1.2 VODEP strategic plan 32
2.4.1.3 VODEP incentive 34
2.4.1.4 VODEP implementation 35
2.4.1.5 VODEP evaluation result 36
2.4.2 Agricultural Transformation Agenda (2010 – 2015) 36
2.4.3 Agriculture Promotion Policy (2016 – 2020) 38
2.5 Theoretical review 39
2.5.1 Mundell-fleming theoretical framework 40
2.5.2 Vent Surplus theoretical framework 40
2.5.3 Comparative advantage theoretical framework 41
2.6 Empirical review 41
2.6.1 Review of the empirical literature on the impact
of monetary
and
fiscal policy 41
2.7Analytical review 45
2.7.1 Ng-Perron test 45
2.7.2 Autoregressive Distributed Lag (ARDL) 46
2.7.3 Error Correction Model 50
2.7.4 Granger causality test 53
2.7.5 Correlation 55
CHAPTER 3:
RESEARCH METHODS AND METHODOLOGY 57
3.1 Research design 57
3.2 Study area 57
3.3 Data source 59
3.4 Method of data analysis 59
3.5 Model specification 60
3.5.1 Quadratic Trend Model 60
3.5.2 Autoregressive Distributed Lag Model 62
3.5.2.1 ARDL Model for Vegetable Oil Production
Response to Monetary
Policy 62
3.5.2.2 ARDL Model for Vegetable Oil Production
Response to Fiscal Policy 63
3.5.2.3 ARDL Model for Vegetable Oil Export Response
to Monetary Policy 64
3.5.2.4 ARDL Model for Vegetable Oil Export Response
to Fiscal Policy 65
3.5.2.5 ARDL Model for Vegetable Oil Import Response
to Monetary Policy 66
3.5.2.6 ARDL Model for Vegetable Oil Import Response
to Fiscal Policy 67
3..5.3 Multiple Correlation
Model 68
3.6
Hypotheses Testing 69
3.6.1 Jarque-Bera statistics 69
3.6.2
F-statistics Test 70
3.6.3
Chi-square Statistics Test 70
CHAPTER
4: RESULTS AND DISCUSSION
4.1 Statistical distribution of vegetable oil
production, trade,
monetary and fiscal policy determinants in Nigeria 72
4.1.1 Test of null hypothesis: vegetable oil
production, trade, monetary
and fiscal policy determinants within the
reference period in Nigeria
were normally distributed 76
4.2 Trend of vegetable oil production and trade in
Nigeria (1980 – 2018) 77
4.2.1 Growth rate of vegetable oil production,
export and import in
Nigeria (1980 – 2018) 78
4.3 Comparison between vegetable oil
production, vegetable oil import,
vegetable oil export and balance of
trade in Nigeria 80
4.3.1 Comparison between vegetable oil productions
to vegetable oil
import in Nigeria 80
4.3.2 Comparison
of vegetable oil export to vegetable oil production in Nigeria 82
4.3.3 Balance
of trade between vegetable oil export and vegetable oil import
in Nigeria 83
4.3.4 Comparison
between the production, trade and balance of trade of
vegetable
oil within the reference period in Nigeria 83
4.4 Stationarity test for vegetable oil
production, import, export, monetary
and fiscal policies 85
4.5 The response of vegetable oil production
and trade to monetary and
fiscal policy in Nigeria 91
4.5.1 Diagnosis test of the short run response of
vegetable oil production
on monetary policy in Nigeria (1980 –
2018) 94
4.5.2 Stability tests of the short run response of
vegetable oil production
on monetary policy in Nigeria (1980 –
2018) 94
4.5.3 Diagnosis test of long run response of
vegetable oil production
on monetary policy in Nigeria (1980 –
2018) 98
4.5.4 Stability tests of long run response of
vegetable oil production
on monetary policy in Nigeria (1980 –
2018) 98
4.5.5 Hypothesis Testing Response of Vegetable Oil
Production on
Monetary Policy in Nigeria (1980 –
2018) 99
4.5.6 Response of Vegetable Oil Export to Monetary
Policy
Determinants in Nigeria 101
4.5.7 Hypothesis Testing of the Response of
Vegetable Oil Export to
Monetary
Policy Determinants in Nigeria (1980 – 2018) 103
4.5.8 Diagnosis Test Short Run Response of
Vegetable Oil Export on
Monetary Policy in Nigeria (1980 –
2018) 104
4.5.9 Stability Tests of Short Run Response of
Vegetable Oil Export
on Monetary Policy in Nigeria (1980 –
2018) 104
4.5.10 Hypothesis
Testing of the Response of Vegetable Oil Import
to Monetary Policy Determinants in
Nigeria (1980 – 2018) 108
4.5.11 Diagnosis
Test of the Short Run Response of Vegetable Oil
Import to Monetary Policy
Determinants in Nigeria (1980 – 2018) 109
4.5.12 Stability
Tests of the Short run Response of Vegetable Oil
Import to Monetary Policy
Determinants in Nigeria (1980 – 2018) 110
4.5.13
Hypothesis Testing of the Response of Vegetable Oil Production
on Fiscal Policy in Nigeria (1980 –
2018) 113
4.5.14 Diagnosis
Test of the Response of Vegetable Oil Production on
Fiscal Policy in Nigeria (1980 –
2018) 114
4.5.15 Stability
Tests of the Short Run Response of Vegetable Oil
Production on Fiscal Policy in
Nigeria (1980 – 2018) 115
4.5.16 Hypothesis Testing of the Response
of Vegetable Oil Import
on Fiscal Policy in Nigeria (1980 – 2018) 119
4.5.17 Diagnosis Test of the Short Run
Response of Vegetable Oil
Import on Fiscal Policy in Nigeria (1980 – 2018) 120
4.5.18 Stability Tests of the Short Run
Response of Vegetable Oil
Import on Fiscal Policy in Nigeria (1980 – 2018) 121
4.5.20 Hypothesis
Testing of the Short Run Response of Vegetable Oil
Export on Fiscal Policy in Nigeria
(1980 – 2018) 124
4.5.21 Diagnosis
Test of the Short Run Response of Vegetable Oil
Export on Fiscal Policy in Nigeria
(1980 – 2018) 125
4.5.22 Stability
Tests of the Short Run Response of Vegetable Oil
Export on Fiscal Policy in Nigeria
(1980 – 2018) 125
4.5.23 Hypothesis
Testing of the Response of Vegetable Oil Export
on Fiscal Policy in Nigeria (1980 –
2018) 129
4.5.24 Diagnosis
Test of the Long Run Response of Vegetable Oil
Export on Fiscal Policy in Nigeria
(1980 – 2018) 130
4.5.25 Stability
Tests of the Long Run Response of Vegetable Oil
Export on Fiscal Policy in Nigeria
(1980 – 2018) 131
4.6 The Response of Vegetable Oil Production to
the Balance of Trade
and other Trade Variables in Nigeria 132
4.6.1 Hypothesis Testing of the Short Run Response
of Vegetable Oil Production
on Balance of Trade and Other Trade
Variables in Nigeria (1980 – 2018) 134
4.6.2 Diagnosis Test of the Short Run Response of
Vegetable Oil Production
on Balance of Trade and Other Trade
Variables in Nigeria (1980 – 2018) 135
4.6.3 Stability Tests of the Short Run Response of
Vegetable Oil Production
on Balance of Trade and Other Trade
Variables in Nigeria (1980 – 2018) 136
4.6.4 Hypothesis Testing of the Long Run Response of
Vegetable Oil Production
on Balance of Trade and other Trade
Variables in Nigeria (1980 – 2018) 138
4.6.5 Diagnosis
Test of the Long Run Response of Vegetable Oil Production
on Balance of Trade and other Trade
Variables in Nigeria (1980 – 2018) 139
4.6.6 Stability
Tests of the Long Run Response of Vegetable Oil Production
on Balance of Trade and other Trade
Variables in Nigeria (1980 – 2018) 140
4.7 The Response of Vegetable Oil Trade to
Vegetable Oil Production
in Nigeria 141
4.7.1 Hypothesis
Testing of the Short Run Response of Vegetable Oil Trade
on Vegetable Oil Production in Nigeria
(1980 – 2018) 143
4.7.2 Diagnosis
Test Short Run Response of Vegetable Oil Export to
Vegetable Oil Production in Nigeria
(1980 – 2018) 144
4.7.3 Stability
Tests of the Short Run Response of Vegetable Oil
Export to Vegetable Oil Production in
Nigeria (1980 – 2018) 144
4.7.4 Hypothesis
Testing of the Long Run Response of Vegetable
Oil Trade on Vegetable Oil Production
in Nigeria (1980 – 2018) 148
4.7.5 Diagnosis
Test of the Long Run Response of Vegetable Oil
Export to Vegetable Oil Production in
Nigeria (1980 – 2018) 148
4.7.6 Stability Tests of the Long Run Response of
Vegetable
Oil Export to Vegetable Oil Production
in Nigeria (1980 – 2018) 149
4.8 Relationship existing among vegetable oil
production, trade, monetary
and fiscal policies in Nigeria 150
CHAPTER
5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1
Summary of Findings 155
5.2 Conclusion 158
5.3 Recommendations 159
References 162
LIST OF TABLES
TABLES
PAGES
Table
2.1 Domestic production of groundnut oil (1000 MT) 27
Table 2.2 Quantity of Vegetable Oil Export and Import
in
Nigeria (in tonnes) 1999 –
2004 31
Table
4.1 Descriptive Statistics for Vegetable Oil
Production, Trade,
Monetary and Fiscal Policies
Determinants in Nigeria (1980 – 2018) 73
Table 4.2 Quadratic Trend Analysis of Vegetable Oil
Production and
Trade in Nigeria (1980 – 2018) 77
Table 4.2.1
Instantaneous and compound growth rate for the quantity of
vegetable oil produced,
exported and imported in Nigeria
(1980 -2018) 78
Table 4.3 Percentage Distribution of Nigeria Vegetable
Oil Production and
Import toVegetable Oil
Domestic Consumption Metric Tonnes
(1980 – 2018) 80
Table
4.4 Percentage Distribution of Nigeria
Vegetable Oil Export to
Vegetable Oil Production in
Metric Tonnes (1980 – 2018) 82
Table 4.5 Balance of Trade between Vegetable Oil Export
and Vegetable
Oil Import Metric Tonnes in
Nigeria (1980 – 2018) 83
Table 4.6 Test
of Null Hypothesis: There is no significant difference
between the quantity of vegetable oil production, export, import and
balance of trade within the reference period 85
Table
4.7 Unit Root Test for Vegetable Oil
Production, Import, Export,
Monetary and Fiscal Policies 86
Table
4.8 Lag Length Selection for Vegetable
Oil Production, Trade
and the Monetary Policy 87
Table 4.9 Lag Length Selection for Vegetable Oil
Production,
Trade and the Fiscal Policy 88
Table
4.10 Lag Length Selection for Vegetable
Oil Production, Trade
and the Balance of Trade 89
Table
4.11 Autoregressive Distributed Lag
Model Bound Test for Cointegration 89
Table
4.12 ARDL Short Run Response of
Vegetable Oil Production on
Monetary Policy in Nigeria
(1980 – 2018) 91
Table 4.12.1
Diagnosis Test of the short run response of vegetable oil
production on monetary
policy in Nigeria (1980 – 2018) 94
Table
4.12.2 ARDL Long Run Response of Vegetable Oil Production on
Monetary Policy in Nigeria
(1980 – 2018) 96
Table 4.12.2.1
Diagnosis test of the estimate of long run response of vegetable
oil production on monetary
policy in Nigeria (1980 – 2018) 98
Table 4.12.3
Toda-Yamamoto Causality (Modified Wald) Impact Test
of Hypotheses 100
Table
4.13 ARDL Short Run Response of Vegetable Oil
Export on
Monetary Policy in Nigeria
(1980 – 2018) 101
Table
4.13.1 Toda-Yamamoto Causality (Modified Wald) Test of Hypothesis 103
Table 4.13.2
Diagnosis test of the estimates of short run response of vegetable
oil export on monetary policy
in Nigeria (1980 – 2018) 104
Table
4.14 ARDL Short Run Response of
Vegetable Oil Import on Monetary
Policy in Nigeria (1980 –
2018) 106
Table
4.14.1 Toda-Yamamoto Causality (Modified Wald) Test of Hypothesis 108
Table
4.14.2 Diagnosis Test of the Short Run Response of Vegetable
Oil Import to Monetary
Policy Determinants in Nigeria
(1980 – 2018) 109
Table
4.15 ARDL Short Run Response of Vegetable Oil
Production
on Fiscal Policy in Nigeria
(1980 – 2018) 111
Table
4.15.1 Toda-Yamamoto Causality (Modified Wald) Test of Hypothesis 114
Table
4.15.2 Diagnosis Test of the Estimate of Response of Vegetable
Oil Production on Fiscal
Policy in Nigeria (1980 – 2018) 114
Table 4.16 Parsimonious Model of the
Short Run Response of Vegetable
Oil Import on Fiscal
Policy in Nigeria (1980 – 2018) 116
Table
4.16.1 Toda-Yamamoto Causality (Modified Wald) Test of Hypothesis 119
Table 4.16.2 Diagnosis Test of the Short Run Response of
Vegetable Oil
Import on Fiscal Policy in
Nigeria (1980 – 2018) 120
Table
4.17 ARDL Short Run Response of
Vegetable Oil Export on
Fiscal Policy in Nigeria
(1980 – 2018) 122
Table 4.17.1 Diagnosis Test of the Estimate of the Short
Run Response
of Vegetable Oil Export on
Fiscal Policy in Nigeria (1980 – 2018) 125
Table
4.17.2 ARDL Long Run Response of
Vegetable Oil Export on
Fiscal Policy in Nigeria
(1980 – 2018) 127
Table
4.17.2.1 Toda-Yamamoto Causality (Modified Wald) Test of Hypothesis 130
Table 4.17.2.2
Diagnosis Test of the Long Run Response of Vegetable
Oil Export on Fiscal
Policy in Nigeria (1980 – 2018) 130
Table
4.18 ARDL Short Run Response of Vegetable Oil
Production
on Balance of Trade and
Other Trade Variables in Nigeria
(1980 – 2018) 133
Table 4.18.1 Diagnosis Test of the Short Run Response of
Vegetable Oil
Production on Balance of
Trade and Other Trade Variables
in Nigeria (1980 – 2018) 135
Table
4.18.2: ARDL Long Run Response of Vegetable Oil Production on
Balance of Trade and other
Trade Variables in Nigeria
(1980 – 2018) 137
Table
4.18.3 Diagnosis Test of the Long Run Response of Vegetable Oil
Production on Balance of Trade
and other Trade Variables in
Nigeria (1980 – 2018) 139
Table
4.18.4 Toda-Yamamoto Causality (Modified Wald) Test of Hypothesis 141
Table
4.19 ARDL Short Run Response of
Vegetable Oil Export to
Vegetable Oil Production in
Nigeria (1980 – 2018) 142
Table
4.19.1 Diagnosis Test of the Short Run Response of Vegetable
Oil Export to Vegetable Oil
Production in Nigeria (1980 – 2018) 144
Table
4.19.2 ARDL Long Run Response of Vegetable Oil Export to
Vegetable Oil Production in
Nigeria (1980 – 2018) 146
Table
4.19.3 Toda-Yamamoto Causality (Modified Wald) Test
Result for Vegetable Oil
production and Export 148
Table 4.19.4
Diagnosis Test of the Long Run Response of Vegetable
Oil Export to Vegetable Oil
Production in Nigeria (1980 – 2018) 149
Table 4.20 Correlation Analysis of the Relationship Existing
Among
Vegetable Oil Production,
Trade, Monetary and Fiscal Policy
in Nigeria 151
LIST OF FIGURES
Figures Pages
Figure
2.1: Conceptual Framework of the Traditional Cycle of
Palm Oil Production in
Nigeria 25
Figure
2.2: Conceptual framework of the mechanised method of
palm oil production as
adopted 26
Figure
2.3: Manual groundnut oil extraction method 28
Figure 4.1
Comparisons between the Production, Export, Import
and Balance of Trade of
Vegetable Oil in Nigeria 84
Figure 4.2
Stability Test of the short run response of vegetable oil
production on monetary policy
in Nigeria (1980 – 2018)
Using CUSUM Test 95
Figure 4.3
Stability Test of the short run response of vegetable oil production
on monetary policy in Nigeria
(1980 – 2018) Using CUSUM of
Squares Test 95
Figure 4.4
Stability Test of the long run response of vegetable oil production
on monetary policy in Nigeria
(1980 – 2018) using CUSUM Test 99
Figure 4.5
Stability Test of the long run response of vegetable oil production
on monetary policy in Nigeria
(1980 – 2018) using CUSUMSQ Test 99
Figure 4.6
Stability Test of the short run response of vegetable oil
export on monetary policy in
Nigeria (1980 – 2018) Using
CUSUM Test 105
Figure 4.7
Stability Test of the short run response of vegetable oil export
on monetary policy in Nigeria
(1980 – 2018) Using CUSUM
of Squares Test 105
Figure 4.8
Stability Test of the Short run Response of Vegetable Oil Import to
Monetary Policy Determinants in
Nigeria (1980 – 2018) Using
CUSUM Test 110
Figure
4.9 Stability Test of the Short run Response of Vegetable Oil Import to
Monetary Policy Determinants in
Nigeria (1980 – 2018) Using
CUSUMSQ Test 110
Figure 4.10
Stability Test of the Short Run Response of Vegetable Oil
Production on Fiscal Policy in
Nigeria (1980 – 2018) Using
CUSUM Test 115
Figure 4.11
Stability Test of the Short Run Response of Vegetable Oil Production
on Fiscal Policy in Nigeria
(1980 – 2018) Using CUSUM of
Squares Test 115
Figure 4.12 Stability Test of the Short
Run Response of Vegetable Oil
Import on Fiscal Policy in
Nigeria (1980 – 2018) Using
CUSUM Test 121
Figure
4.13 Stability Test of the Short Run Response of Vegetable Oil
Import on Fiscal Policy in
Nigeria (1980 – 2018)
Using CUSUM of Squares Test 121
Figure 4.14
Stability Test of the Short Run Response of Vegetable Oil
Export on Fiscal Policy in
Nigeria (1980 – 2018) Using
CUSUM Test 126
Figure
4.15 Stability Test of the Short Run Response of Vegetable Oil
Export on Fiscal Policy in
Nigeria (1980 – 2018) Using
CUSUM of Squares Test
126
Figure 4.16
Stability Test of the Long Run Response of Vegetable Oil
Export on Fiscal Policy in
Nigeria (1980 – 2018) Using
CUSUM Test 131
Figure
4.17 Stability Test of the Long Run Response of Vegetable Oil
Export on Fiscal Policy in
Nigeria (1980 – 2018) Using
CUSUM of Squares Test 132
Figure 4.18:
Stability Test of the Short Run Response of Vegetable
Oil Production on Balance of
Trade and Other Trade Variables
in Nigeria (1980 – 2018)
Using CUSUM Test 136
Figure
4.19: Stability Test of the Short Run Response of Vegetable
Oil Production on Balance of Trade
and Other Trade Variables in
Nigeria (1980 – 2018) Using
CUSUMSQ Test 136
Figure 4.20:
Stability Test of the Long Run Response of Vegetable
Oil Production on Balance of
Trade and other Trade Variables in
Nigeria (1980 – 2018) Using
CUSUM Test 140
Figure
4.21: Stability Test of the Long Run Response of Vegetable Oil
Production on Balance of
Trade and other Trade Variables in
Nigeria (1980 – 2018) Using
CUSUMSQ Test 140
Figure 4.22
Stability Test of the Short Run Response of Vegetable Oil Export
to Vegetable Oil Production
in Nigeria (1980 – 2018) Using
CUSUM Test 145
Figure
4.23 Stability Test of the Short Run Response of Vegetable Oil Export
to Vegetable Oil Production
in Nigeria (1980 – 2018) Using
CUSUMSQ Test 145
Figure 4.24
Stability Test of the Long Run Response of Vegetable Oil Export
to Vegetable Oil Production in
Nigeria (1980 – 2018) Using
CUSUM Test` 150
Figure
4.25 Stability Test of the Long Run Response of Vegetable Oil Export to
Vegetable Oil Production in
Nigeria (1980 – 2018) Using
CUSUMSQ Test
150
LIST OF APPENDIX
Appendix Pages
Appendix II: Test of
Null Hypothesis: There is no significant difference
between the quantity
of vegetable oil production, export, import
and
balance of trade within the reference period 171
Appendix
II: Quadratic
trend analysis of vegetable oil production, export
and import from 1980 – 2018 172
Appendix III: Unit
root test for vegetable oil production, trade, monetary
and fiscal policy determinants 174
Appendix IV: Lag
length for vegetable oil production, trade, monetary and
fiscal policy determinants 177
Appendix
V: Bound test for response of vegetable
oil production and
trade to monetary and
fiscal policies in Nigeria (1980-2018) 184
Appendix
VI: Response of vegetable oil
production to monetary and fiscal
policy determinants 189
Appendix
VII: Response of vegetable oil
production to trade and vice versa 210
Appendix
VIII: Toda-Yamamoto (TY) granger causality test 222
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND
OFTHE STUDY
Vegetable
oil is an important agricultural value added product that is produced through
the extraction of oil from the edible part of crops such as oil palm,
groundnut, soybean, cotton, sunflower, melon, moringa (Moringa oleifera), cashew, beniseed and so many other crops that
contain extractable oil. This implies that vegetable oil is a general name used
to represent all the oils from crops that has extractable oil content. This is
why it is widely known that vegetable oil such as palm oil is produced from the mesocarp
of oil palm fruit (Nwalieji and Ojike, 2018; Ekenta, Ajala, Akinola, and Oseni, 2017;
and Gourichon, 2013) while groundnut and soybean oil are produced from the seed
of groundnut and soybean respectively.
Vegetable oil is produced for household and
industrial uses. When the vegetable oil is refined or bleached, it serves as
cooking oil for the households and industrial uses (Matthaus, 2007). When the
vegetable oil is in the crude form, it serves for an intermediate product used
by industries to produce refined or bleached vegetable oil.
Groundnut is the second-largest source of
domestic vegetable oil. Among the world sources of vegetable oil, soybean oil
(53%) ranked the number one position, followed by palm oil (26%) while
groundnut oil (9%) ranked the fifth position (El-Hamidi and Zaher, 2018). Moreover, Nwalieji et al. (2018) opined that vegetable oil production in Nigeria is
characterized by low productivity at the production and processing level. This
is caused
by factors affecting agribusiness such as
lack of storage and marketing facilities, supply of inputs, low quality of
output, inefficient processing method, lack of infrastructures like good road,
epileptic power supply and inefficient distribution (Gourichon, 2013 and
Olagunju, 2008). However, Olagunju, (2008) reported that Nigeria has the
potential to become the world number one in vegetable oil production and trade.
Meanwhile,
prior to Nigeria independence, the production of these major vegetable oils
such as palm oil, groundnut oil and soyabean oil in its different forms in
Nigeria had made a significant contribution to the growth of agricultural trade
in 1950s before the oil boom in 1970s (Adetola, 2015; Onoh and Peter-Onoh,
2012). This is because the economy was much more dependent on agriculture, when
agricultural policies that were backed up with programmes were designed and
implemented to encourage production and exportation of vegetable oils. In the
1950s, the colonial government designed and implemented Agricultural Policy of
1946 and the Policy for the Marketing of Oils, Oil Seeds and Cotton of 1948
towards production and exportation of vegetable oils such as palm oil and crude
groundnut. These policies were backed up with a programme called Farm
Settlement Scheme which became functional in the early 1960s (Iwuchukwu and
Igbokwe, 2012).
According
to Central Bank of Nigeria (2011), the desire of the government to restore the
agricultural sector to its pre-oil boom era, the democratic administration of
1999 – 2007 anchored its poverty alleviation programme on agricultural revival.
The administration introduced a policy programme known as Presidential
Initiative on Agriculture (PIA) which anchored on public-private sector
partnership. The policy of the programme is to grow the production, processing,
marketing and utilization of various crops including vegetable oils, livestock
and fisheries in order to boost national food security. This was to enable the
country launch itself back to the export market in the future (CBN, 2011). In
addition, Gourichon (2013) reported that, Nigeria policy objective on vegetable
oils production and trade were designed to meet domestic demand and as result
of the policy objective, the Nigerian Institute for Palm Oil Research (NIFOR)
was established to boost palm oil production. In the same view CBN (2011),
described that the Vegetable Oils Development Programme (VODEP) that was
initiated in 2002 has helped the country to achieve a lot in vegetable oils
productivity and trade. The programme recorded an increase in palm oil
production from 1.3 million tonnes in 2000 to 3.5 million tonnes of palm oil in
2007 at 177 per cent increase. Though impressive, this increase in productivity
has not been able to meet target aggregate for vegetable oils production of
about 7.93 million tonnes per annum. The bank further stated that in order to
achieve the objective of the VODEP, the government modified the monetary and
fiscal policies which boost productivity and marketing of vegetable oils.
According
to Asiabaka, (2002), policy is a guideline that guides peoples’ action and
behaviour in an organization. Chigbu and Njoku, (2013) stated that the set of
policy
measure
adopted by the government in regulating economic activities in order to control
inflation, recession, unemployment, trade and growth in the economy is monetary
and fiscal policies. This is why Onwumere, Alamba and Onyika (2008), stated
that fiscal and monetary policies have the ability to control and improve the
performance of agricultural sector. Monetary policy is used by the monetary
authorities in controlling interest rate charged on money supply to the
economy, while fiscal policy is used by the government to control taxes and
government expenditures on the economy. According to Nwankwo (2000), monetary
policy is a conscious action taken by the monetary authorities to control the
availability of money, the quantity and cost of money in an economy in order to
attain economic goals. The importance of
monetary policy to an economy was highlighted by Milton Friedman where he
stated that money matters in an economy and as such, it is a more stabilizing
tool for an economy than the fiscal policy (Nzotta, 2004). According to Parker
in Ogar, Nkamare & Emori, (2014), fiscal policy is a statement that
contains the goals and objectives of an organisation in relation to a
particular issue. Ogar, et al.,
(2014) opined that monetary and fiscal policies affect the economic activities
of both private and government-owned establishment. This is why Jhingan stated
in Ogar et al., (2014) that when an
economy is in a depressed state, it needs the stimulation of the fiscal and
monetary policies such as increased spending and money supply, reduction in
taxation and interest rate but when the economy is in booming state, inflation
threatens. Therefore, Anyanwu noted in Ogar et
al., (2014) that monetary and fiscal policies can indisputably bring about
the growth and development of economic sectors such as agricultural sector and
its sub-sectors. However, Guerra and Harrington (2018) asserted that government
revenue is generated through the domestic and foreign structured tax system.
They further held that revenue generated from taxation sustains and grows the
economy since it is an instrument of macro-economic policy and fiscal
management.
Also,
Noko (2016) opined that among the causes of economic recession in Nigeria,
policy conflict, high inflation rate, high-interest rate, high taxation and
poor economic planning such as budget delay, exchange rate policy are
well-pronounced. These economic variables are known to be monetary and fiscal
policy determinants. This was why Onyika and Onwumere (2012) stated that
Nigeria macroeconomic environmental determinants include fiscal policy and
monetary policy which are responsible for the performance of agribusiness in
Nigeria. Therefore, this study evaluated the impact of monetary and fiscal
policies on the production and trade on vegetable oil in Nigeria from 1980 to
2018.
1.2 PROBLEM
STATEMENT
Despite the vegetable oil development
programme (VODEP) initiative of 2002 in Nigeria, the increase in vegetable oil
production from 1.3 million tonnes in 2000 to 3.5 million tonnes in 2007 is,
however significantly lower than the target aggregate production of 7.93 million
tonnes per annum (CBN 2011). This might be as a result of the delay in budget
approval, which when finally approved and released, a lower share of the budget
is released for the programme. This is why CBN (2011) reported that out of N7.59 billion and N50. 675 billion that were approved for the VODEP take-off and
implementation respectively within 2002 - 2007, only N50.445 million (0.7%) and N125
million (0.3%) were released for the programme take-off and implementation
respectively. The bank further held that the delay in fund release made the
programme that supposed to have started in 2002 later started in late 2004.
This shows poor policy implementation within those periods. According to
Federal Ministry of Agriculture and Rural Development (FMARD) (2016), one of
the key objectives of Agricultural Transformation Agenda (ATA) of past
democratic government was to address the problem associated with lack of
financial institution lending to agricultural production, trade and heavy
dependency of the country on importation of agricultural products that the
country has comparative advantage. Their evaluation study found out that the
progress made under the ATA on crop processing was that additional works were
still required in order to meet the objectives. They noted that Nigeria was
still importing a significant amount of food without earning a significant
amount from agricultural trade. This led to the introduction of Agricultural
Promotion Policy (APP) in 2016 in order to refresh the strategy of ATA which aim
to ensure the increase in productivity and exportation of value-added
agricultural products.
Despite the objective of the
government in using fiscal and monetary policy to ensure increasing growth in
agricultural production and trade, the country still battles with the overt recession
in 2015. The ban on importation of refined vegetable oil was to encourage local
producers to have available local market to sell, thereby giving them the
opportunity to increase their production (Nigeria Customs Service, 2019). They
further stated that in order to discourage the importation of those products,
the Central Bank of Nigeria does
not provide foreign exchange for the
import of the refined vegetable oils. Invariably, the importation of crude
vegetable oils was not banned and this is an indication of low production of
crude vegetable oil in Nigeria.
FAO (2018) reported that groundnut oil
production has been on the decrease in Nigeria, this is why the organisation
reported that in 1999, 405,000 metric tonnes of groundnut oil was produced
while in 2003, the quantity of groundnut oil that was produced in Nigeria was
309,000 metric tonnes. However, Nigeria which used to be the number one major
producer and exporter of vegetable oil such as palm oil, soybean oil and
groundnut oil is now the third producer and exporter of vegetable oil (such as
palm oil) after Malaysia and Indonesia in the world (Gourichon, 2013).
Likewise, Nigeria production of vegetable oil does not satisfy their local
demand. Although, the country still exports from the total production and uses
import measure to supplement local demand. This is why Gourichon (2013) opined
that the total production of palm oil in Nigeria from 2005 to 2009 in 1000
tonnes ranges from 1170, 1287, 1309, 1330, to 1380 respectively. The same
report held that the production does not satisfy the local demand but also the
country went as far as exporting 0.7%, 0.3%, 0.9%, 1.4% and 0.6% of total
production from 2005 to 2009 respectively. It held further that Nigeria uses
importation measure to meet up with domestic demand across the years. This
situation has an implication on the growth of vegetable oil production and
trade in Nigeria. In the same line, Gupta (2013) reported that in southern
Nigeria, 42,658 hectares of land was planted with oil palm in order to boost
the production and processing of palm products, but palm oil produced from the
proceed of the plantation and other plantations in the country, couldn’t meet
the local and international demand for palm oil. That was why Foundation for
partnership in the Niger Delta (2011), reported that Nigeria system of
vegetable oil production with respect to palm oil is based on the semi-natural
grove while smallholder and medium scale plantation contributing little to the
total palm oil production in the country. This can be attributed to being one
of the major causes of low production and trade of vegetable oil (palm oil) in
Nigeria.
Worse still, most studies on the
growth and export of agricultural products in Nigeria focused on policies and
programmes regime of past governments (Udah., Nwachukwu, Nwosu, & Mbanasor,
2015; Ademola, Olaleye, Olusuyi, & Edun, 2013; Ugwu and Kanu, 2012; and Dada, 2007). These
studies did not explicitly evaluate the impact of monetary and fiscal policies
of the past and current regime on the production and trade of vegetable oil in
particular and the agricultural products in general.
1.3 RESEARCH
QUESTIONS
As a guide to this study, the
following research questions were addressed:
i.
What was the statistical
distribution status of vegetable oil production, trade, monetary and fiscal
policies determinants within the reference period?
ii.
How was the production,
import and export growth of vegetable oil in Nigeria within the reference
period?
iii.
Does vegetable oil
production measure up to its demand in the local and international markets with
respect to export and import in Nigeria within the reference period?
iv.
Does vegetable oil
production and trade respond to monetary and fiscal policies in Nigeria within
the reference period?
v.
How did vegetable oil
production respond to the balance of trade and other trade variables within the
reference period?
vi.
What was the response of
vegetable oil trade on vegetable oil production within the reference period?
vii.
Were there any
relationship existing among vegetable oil production, trade, monetary and
fiscal policies within the reference period?
Consequently, this study evaluated
the impact of monetary and fiscal policies on the production and trade on
vegetable oil in Nigeria within 1980 – 2018.
1.4
OBJECTIVES OF THE STUDY
The broad objective was to evaluate
the impact of monetary and fiscal policies on the production and trade on
vegetable oil in Nigeria (1980 – 2018). The specific objectives are to:
i.
establish the statistical
distribution of vegetable oil production, trade, monetary
and
fiscal policy determinants within the reference period in Nigeria;
ii.
estimate the vegetable
oil production and trade with respect to acceleration, stagnation and
deceleration within the reference period;
iii.
compare the production,
export, import and balance of trade of vegetable oil
within
the reference period in Nigeria;
iv.
evaluate the response of
vegetable oil production and trade on monetary and fiscal
policies
in Nigeria within the reference period;
v.
determine the response of
vegetable oil production on the balance of trade and
other
trade variables in Nigeria within the reference period,
vi.
analyse the response of
vegetable oil trade on vegetable oil production in Nigeria
within
the reference period and
vii.
ascertain the
relationship existing among vegetable oil production, trade,
monetary
and fiscal policies within the reference period in Nigeria
1.8
RESEARCH
HYPOTHESES
The following research hypotheses were
tested:
i.
H0: vegetable
oil production, trade, monetary and fiscal policies determinants within the
reference period in Nigeria were normally distributed,
ii.
H0:There is no
significant difference between the volumes of vegetable oil production, export,
import and balance of trade within the reference period,
iii.
H0: vegetable
oil production and trade do not significantly respond to monetary and fiscal
policies within the reference period in Nigeria,
iv.
H0: Vegetable
oil production do not significantly respond to the balance of trade and other
trade variables in Nigeria within the reference period
v.
H0: Vegetable
oil trade does not significantly respond to vegetable oil production in Nigeria
within the reference period.
vi.
H0: Monetary
and fiscal policies do not granger cause vegetable oil production and trade in
Nigeria within the reference period and
vii.
H0: Vegetable
oil production do not granger cause vegetable oil trade within the reference
period in Nigeria and vice versa
1.9
JUSTIFICATION
FOR THE STUDY
The trade of vegetable oil that is
produced in and outside Nigeria is always affected by so many factors such as
government policy, capital, demand and other factors. This study showed how
monetary and fiscal policy of the government affects the production, export and
import on vegetable oil in Nigeria. Importantly, there is need to project into
the future on how monetary and fiscal policies affect production and trade of
vegetable oil in Nigeria. The result on the short and long-run relationship will
helps us understand and make forecast on the current state and future outlook
of vegetable oil production and trade in Nigeria.
However, this research finding will
be of in-depth benefits to the monetary authorities, the government and her
agencies and programmes, policymakers, private agribusinesses producers,
traders and academic institutions. The results from this study is expected to
be useful to the Central Bank of Nigeria in making an informed decision on
monetary policy
option for the revitalization of
agribusinesses especially in the face of the decline in vegetable oils
production and trade in order to grow foreign exchange earnings and food
sufficiency.
Furthermore, the outcome of this
study will be of immense benefit to the government and her agencies and
programmes in making decision on the model they need to adopt in order to make
a stable fiscal policy that will grow vegetable oils production and trade in
particular and agribusinesses in general in order to keep the country out of
recession but into economic boom at all times.
Also, policymakers, literate private
agribusinesses, producers and traders
would find information contained in this thesis very useful for planning and
making sound decisions where necessary, thereby ensuring effective decision
making (providing information on the level of vegetable oil demand in Nigeria).
Finally, the research findings will be of great advantage to the academic
community in view of the fact that the subject matter is a bridge in the gap of
knowledge. Future researchers who may be willing and able to research into a
related study may have added literature to lay hands on as a reference
material.
1.10
SCOPE
OF THE STUDY
The study covered from 1980 to 2018
period. The period was selected because it covered the military and democratic
era in Nigeria which involved several monetary and fiscal policies operations.
Also, time-series data analysis involving the use of small sample size
(from 30 to 80) can only be tested
for its cointegration using Narayan 2005 critical values. However, the periods
witnessed changes in the monetary and fiscal policies of monetary institutions
and the government respectively. It is also important to note that the study
focused on the several policies that influenced lending to agriculture and
reduction in interest rate for agriculture, that was designed and implemented
within democratic era such as Presidential Initiative on Agriculture (PIA) from
1999 to 2007, Agricultural Transformation Agenda (ATA) from 2011 to 2015 and
Agricultural Promotion Policy (APP) from 2016 to 2020. However, this study was
limited to the period within 1980 to 2018 which guaranteed the availability of
data on vegetable oil production, trade, and the monetary and fiscal policies
within that political dispensation. Therefore, this research strongly focused
on evaluating the impact of monetary and fiscal policies on vegetable oil
production and trade in Nigeria (1980 – 2018).
1.11
CHALLENGES
TO THE STUDY
The study of the impact of monetary
and fiscal policies on production and trade on vegetable oil in Nigeria (1980 –
2018) was very tedious and tasking for a single researcher as it was time
consuming. However, substantial time was devoted throughout the research work. The
conceptualization and tailoring of the research writing in line with the topic for
easier understanding of every reader was not easy. This involved racking of
brain, brainstorming with my supervisor and surfing for relevant educational information
from the internet.
To extract relevant secondary data
and information from the database of Central Bank of Nigeria, Food and
Agriculture Organisation, Index Mundi and National Bureau of Statistics on
vegetable oil production, trade, the monetary and fiscal policies determinant
from the internet , the researcher have to be internet savvy. However, my experience in computer literacy
since my undergraduate programme at Ebonyi State University guided me towards
overcoming this limitation. Finally, the
data collation, data massaging, data testing, data analyses, result
presentation and interpretation needed the service of expert in data science.
However, my experience in data science and econometrics guided me to overcome
this limitation.
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